Basics of Wholesaling in Real Estate

By: Loreal Loftus

Wholesaling in real estate is a strategy where an investor (the wholesaler) contracts a property with the seller and then assigns that contract to another buyer, usually for a profit. The wholesaler doesn't actually buy or own the property; instead, they act as a middleman between the seller and the end buyer, often an investor or flipper.

Here are the basics of real estate wholesaling:

1. Find a Property

• The wholesaler seeks distressed or undervalued properties, often from motivated sellers. Motivated sellers may include those in financial distress, facing foreclosure, or dealing with inherited properties.
• Wholesalers often look for properties that need repairs, where the seller is looking to sell quickly.

2. Negotiate a Contract

• Once a potential property is identified, the wholesaler negotiates a purchase agreement with the seller, often for a price below market value.
• The contract should include a clause allowing the wholesaler to assign the contract to another buyer, as the wholesaler doesn't intend to purchase the property themselves.

3. Find a Buyer (Investor/Flipper)

• The wholesaler then markets the contract to potential buyers, usually investors or house flippers looking for good deals. These buyers typically purchase properties at a discount and renovate them for resale.
• The wholesaler will either assign the contract to the buyer or sell the contract outright, often for a "finders fee" or a profit margin.

4. Assign the Contract or Close the Deal

• Assignment: The wholesaler assigns the contract to the end buyer for a fee (typically between $5,000 and $10,000 or more).
• Double Closing: In some cases, the wholesaler may close on the property (buy it) and immediately sell it to the end buyer, but this is more complex and may involve extra costs and time.

5. Make Your Profit

• The wholesaler's profit is the difference between the contract price with the seller and the price the end buyer is willing to pay. The wholesaler can also charge an assignment fee for facilitating the deal.

Key Tips for Success:

• Market Knowledge: Understanding local market values and knowing how to evaluate properties will help ensure the wholesaler can secure a good deal.
• Strong Network: Building a network of motivated sellers, buyers, and real estate professionals (agents, contractors, etc.) is crucial.
• Due Diligence: Conducting proper research on property values, repair costs, and market conditions can help avoid pitfalls.
• Legal Considerations: Wholesalers need to be aware of local laws, especially regarding contract assignments, disclosures, and ethics.

Wholesaling can be a profitable strategy, but it requires a solid understanding of real estate, effective marketing, and strong negotiation skills.